The crypto community is abuzz about bitcoin (BTC) reaching an all-time high on Tuesday.

But the share prices of miners – who play a vital role in the Bitcoin ecosystem – have failed to replicate the dizzying rally as investors, wary of upcoming risks from the so-called halving, are instead pouring money into spot bitcoin ETFs.

Read more: What is the Bitcoin Halving?

Historically, bitcoin miners were seen as a proxy for bitcoin's price, but with higher returns when BTC rallied. Investors worldwide who couldn't buy bitcoin from exchanges due to restrictions could buy mining stocks to gain exposure. That helped fuel the giant rally during the last bull market cycle in 2021.

Unsurprisingly, these stocks slumped significantly during the subsequent bear market and some high-profile miners filed for bankruptcy, too. As the industry emerged from the brutal crypto winter and miners cleaned up their issues, there were hopes that their share prices would recover amid a bitcoin rally. But something else happened: Bitcoin's price is up about 54% this year and just hit an all-time high above $69,000, while the Valkyrie Bitcoin Miners ETF (WGMI), a fund that tracks the performance of publicly traded miners, fell about 21%.

This disconnect between BTC and mining stocks gave investors a somber reminder that this bull run is different.

The main driver of the rally in bitcoin, this time around, was the Securities and Exchange Commission this year approving spot bitcoin exchange-traded funds in the U.S.

Just like the miners' stocks, these ETFs trade on stock exchanges – accessible to just about any American brokerage account. This enabled investors to gain more direct exposure to the digital asset without having to buy them through separate accounts at crypto exchanges. This also ensured that they could hold bitcoin without having to expose their portfolio to the volatile nature of the mining stocks and their corporate risks.

"With the approval of Bitcoin ETF products, investors can now access direct exposure to bitcoin price. Prior to the approval of the ETF, public mining stocks were one of the only traditional vehicles through which investors could get exposure to bitcoin price appreciation," Galaxy's mining analysts, led by Brandon Bailey, wrote in a research note.

It's possible that retail investors may still buy into mining stocks, but for institutional players – the ones that move the needle in most cases – short-selling mining stocks became the preferred trade. "Institutions are seemingly more likely in the short run to go long the Bitcoin ETFs and short mining stocks, which we've seen start to play out since the beginning of 2024," the report added.

Unless the miners can show strong positive cash flow generation, investors will likely shy away from funding some miners, posing "challenges in the equity market for lower margin, higher cost operators with weaker track records for return on capital," the analysts said.

Another roadblock for mining stocks, this time around, is the upcoming Bitcoin halving event in April, which will ramp up the competition for the miners. The halving is part of the Bitcoin network's code to reduce inflationary pressure on the cryptocurrency. Miners are rewarded bitcoin for running the network, but every four years, a halving cuts that reward in half.

Read CoinDesk's halving coverage here.

Bitcoin soared after the last halving in May 2020, and miners joined in. At the time, there weren't many large-scale miners. This time around, though, the market is crowded with many large-scale miners, who will compete for bitcoin rewards that will be cut to 3.125 from 6.25 bitcoin. On top of that, the difficulty of mining a block has also risen to an all-time high, which will make things even tougher post-halving.

This poses a significant uncertainty for investors in mining stocks. "Uncertainty prevails regarding which miners will weather the storm and survive the impending revenue halving," George Kikvadze, executive vice chairman of Bitfury Group, wrote in a blog post.

"Consequently, investors seek tangible reassurances amidst this uncertainty and are diverting capital to the perceived safety of Bitcoin ETFs," he added.

So, is there any silver lining for the miners?

Galaxy's analysts predict that there are few positive trends that can help the miners. One of them is transaction fees, which could be the "biggest wildcard" for mining revenue in 2024. As fees generated by Ordinals – NFT-like assets recorded on the Bitcoin blockchain – have recently helped miners' revenue, and that could help them stay afloat post-halving.

"While we might expect hashrate to drop following the halving [as weaker miners shut down their operations], a significant fee spike around the same period could boost revenues sufficiently high, enabling less efficient miners that would otherwise be unprofitable to still mine at the margin," the analysts wrote.

Some other options that could also help the miners include hedging their power cost and using the mined bitcoin to hedge pricing volatility. The analysts also predict that mergers and acquisitions will likely ramp up this year as smaller, less efficient miners will likely need to be bought out by larger ones to survive the competition.

Read more: Bitcoin Halving Is Poised to Unleash Darwinism on Miners

Meanwhile, Bitfury's Kikvadze said that historical precedent suggests miners will "thrive" after the halving, despite the market's concern. He looked at the performance of publicly traded miners' stocks during the May 2020 halving, which showed "miners underperformed or remained on par with Bitcoin in the months leading up to the halving, they outperformed it during the subsequent 'Bitcoin summer' bull run."

So far, miners have underperformed bitcoin's price heading into the halving event. If history holds true, there might be a chance that mining stocks could catch a bid after the halving event, while a rally in bitcoin price past an all-time high might also help.

"The current lull in publicly traded Bitcoin miners is a temporary setback, anticipated amidst the halving event. As the dust settles, robust miners will shine, and investors will flock to the sector," Kikvadze wrote.

Read more: Will the Next Bitcoin Halving Be Another Hype Cycle?